tv [untitled] July 30, 2011 4:30am-5:00am EDT
the main stories we're covering for you aaron aren't the torpedo effect democratic led senate kills republican debt ceiling cracked shortly after it was already passed out of house u.s. default deadline looms. cultural conservative islamist overwhelm egypt's tahrir square demanding surreal go on in the wake of revolution spreading across the region israelis take to the streets to protest the social justice.
because number of journalists in the u.s. decreases the population sets of grace rapidly and some say the ultimate victim of the trend will be democracy. coming up next people of own looks at russia's capabilities in the world's financial arena and its mission of on the money. if if. hello in welcome to on the money with the business of russia it is business i'm peter today we're talking about russia in a volatile brawl. discuss this issue i'm joined by chris we are
here in the studio with me is chief strategist g. we also have he is chief economist for russia and c.i.s. at renaissance capital and we have anatol you know a coffee is head of asset management at gazprom bank and andre who is near the source he is c.i.s. russia strategist and vice president citi investment research in our sis at citi bank ok chris i'm going to start out with you gentlemen let's all talk about the volatility in the world let's start with the eurozone. where is it going is there any end in sight and if there is any and so i would say outcome. no i don't think that's what we're not expecting to see any you know short term solutions to really this is a very extensive problem and it's going to require you know a substantial year or wait you know a solution so i think you know obviously to the summer months we expect to see some perhaps some temporary stopgap measures you know because only insofar as that is for two years it's going to keep going like that i would think you know we are now
at the point where there has to be something much more radical we will need to see the banking system in europe for example provide provide it with some substantial like trillion euro or backstop for example because that's the big threat to all of this is that if you do get it before didn't leave these countries then you start to run and we're going to default and if they can even when we do you think it's going that's your crisis actual deal with. it's a problem that will get pathetic little puppet for a for a number of years probably it will take a lot of time to solve itself i think the key issue in europe is that you have the political countries that are noncompetitive petrol and therefore it's very difficult for them if. exchange rate to recover this competitiveness and that's the core of the problem and tell me if i can go to you where do you think the euro is going to go because it seems to be consensus here at least in the studio that if it's going to be fixed it's going to take a hell of a long time in a lot of money. oh i can only agree that in the short term there's not going to be. some radical fix which will solve all the issues however i think.
you know there is enough. to avoid. you know down and. i think strongly strongly believe that. there's not going to be default. in euro zone even in the peripheral countries because otherwise it's going to be really contributors and it will not be stopped you know from spreading from greece portugal and ireland to wards spain italy and. later to germany because these guys when there will not have anybody to buy. their exports so it should be stuck there for all of europe otherwise it's going to be really really ugly ok under franco to you and we just heard that there's political will i mean there's just more fear than anything else that's why they have to fix it before we talk about how it affects russia what do you where do you think you're always going to
go but the problem here is on its face in. these quite fundamental and of course it cannot be sold in any future so that's why probably are you people patients are trying to postpone. the final solution of the problem for as long as possible so we will see some sort of talk measures so they can but it is soon bot. of course one to expect the fundamental problem of. one hundred dollars. kind of specific critical quality will be sold many times ok chris let's go back to the studio here let's go to the u.s. double dip in the future before the u.s. could i just add one last point on the euro zone i think that the political angle is very important here because it seems to me that you know while as you quite rightly say it's more and more fear of a meltdown rather than political will i think the political aspect is important in
that we're seeing these major political differences in other words the voting public in countries like germany that are very solid and they're increasingly getting fed up what you know you pay for exactly and i think that's the issue so i think i wouldn't automatically dismiss therefore some form of a default i think that the germans seem to be gunning for something as you know the shared pain you know rather than have the german taxpayer pick it all up for example and i think it seems to me from listening to chancellor merkel is that she's in favor of some sort of a controlled default if there is sort of living through elected yeah voltaren if this is seen through what they're pushing for extremely dangerous territory of course once you go down that road you don't know where it's going to go but it seems to me at least from the political side the solvent countries don't want to be picking up the tab all the time we want to share this and i think that's the core of this issue right now that we're out of what i'm supposed to be all about and what about of us us well i guess we all assume that the that the u.s. will strike some sort of a temporary deal to prevent you know the default on august. fourth. so that's what
the market is assuming and i guess that the noises coming from us suggest that is the case but again we're looking at a stopgap measure we're looking at some sort of a temporary solution i think you know this whole issue of debt and deficits and trying to balance growth with stimulus is likely to be the backdrop in the u.s. and therefore globally right up to the election seems to be we are. flavor of the month what do you think about the usual because you know a temporary agreement looks like it's in the works here but that doesn't solve the fundamental problems the united states has yet this may be the case but i think that still believe that the probability of a policy mistake in the united states is much less than according to the policy policy mistake in europe i don't think that at this stage of the game there is an appetite in united states for making such an error and actually it's very interesting because this is a very nice contrast to the lehman situation i think there was an appetite back then to say you know it's good to have a big investment bank fail and pay and and so and something which happened but i
don't think this is the case right now and probably this is the good news in the united states. trying to you on that one where you think the u.s. is going on its economy and we look at all what it would be in the world because you know we're looking at the chinese are watching very carefully they don't want to see any kind of major breakdown in the in the u.s. budgetary system nor does anyone else in the world do you think the u.s. economy is going. well we don't expect you know any. surprises on the positive side you know some unexpected jump in. or a mentor or the growth but. we think it's going to be pretty nice you know economy is going to expand moderately and jobs will grow and you know the budget deficit will be reduced just the question to how much and as we all heard if it was not would be not enough you know to keep the economy going there would be
what if using three and let's talk about that when i reach a little bit later but is if i go to you is optimistic on the u.s. economy is going to tell us. well i am more promiscuous equipment than on the euro zone economy because problems are. as fundamental i mean. they could not be solved in the boiler room where you. were discussing default or not default but it's a matter of how. much money will be very good to call the or. a homage to. greece in the future so in a sense they're less fundamental than that if it was ok gentlemen let's go let's turn this to russia chris how is all that we've mentioned in this program so far of affecting russia and how will it affect russia well right now russia's been effective because investors globally are just risk averse you know nobody's taking
any major bets they're watching the big picture in europe and the u.s. and that means that they're generally very quiet in countries like russia let's face it peripheral countries russia continues to be viewed as something as a derivative trade in the global economy so so bad uncertainty is affecting russia and it's it's we've seen volatility in the stock market or the market of course reflecting the news flow but in general there's not a great deal of investment activity in russia for now it has to be said you know thank god for libya. i mean it's clearly oil prices opened at one twenty so russia you know relatively looks fiscally and in terms of its budgets it looks very good but it's still you know the backdrop obviously it's still viewed as a as a risk economy in the global context because we are so so exposed to the global economy and that long term you know is obviously the big picture is the big story for russia if if the u.s. or europe doesn't get it right if they make a major mistake and we dare for go into some you know a double dip or or
a big slowdown in the economy and of course russia is going to be cracked just as much as they will talk about oil in the second part of the program or what do you think about this i mean how is russia fairing through all of this paul. because we can read on the talk about what happened in two thousand and eight but you know is russia a better bet in some ways i mean a flight to quality in some ways i think russia is more more vulnerable now than before and i would like to go back to the fiscal issue that chris mentioned as everybody knows that oil price that is needed to balance the budget right now it's a hundred and twenty five dollars it was much less before before the crisis russia is or was was in a much better fiscal positions we had more money to to to pursue aggressive countercyclical fiscal policy if now if we didn't see major shock to all prices i think the where we thought of the right of the russian authorities is much less so this could be an avenue route which they could be affected of course there are a number of ways you need to encourage actually russia is less probably probably
going to be less vulnerable for example they have a much more flexible exchange rate policy than before flexible exchange little more flexible exchange that allows the less flexible exchange rate before and they have a much less share my small share of short term external debts than before a crisis and i think this is also going to be positive for russia should we experience a major expansion in italy what do you think about is russia more vulnerable now than it was before the start of the crisis in two thousand and eight. or of course much less vulnerable because so many lessons have been learned in two thousand and eight and now the policymakers are equipped with all these refinancing mechanisms that you know the banks you know can be easily refinanced and much less dependent on the boring stuff from the international lenders and also the reason why am i. there is much less hot money from international investors right now in russia and
there is no virtually no leverage in the stock market so. i would i would bet i would say that we're way to much less vulnerable and we'll learn a lot you know from the teeth are going to i'm sorry everybody would go on to do what do you think about russia more or less vulnerable than it was in two thousand and eight for we got to grow up i think with corporate russia is less vulnerable than it was before the crisis because the duration of that was increased and the corporates for learned the lessons of the cross and souls made by our overall market is more vulnerable because of this issue of the home mortgage broker the whole process and ok gentlemen i'm going to jump in here we go to a short break and after that break we'll continue our discussion on russia and global volatility state with our team.
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and dumped on official nature reserve. to the original. bush a close up on the marquee. welcome back on the money hiring people today we're talking about russia and volatility but first let's have an overview of russia in the global economy. the two thousand and eight now down so global investors deserve russia then the government billions into the community and economic support. that russia had built up prior to that has been since largely rebuilt there is always or of that has been built up and currently we have more than one hundred twenty billion dollars. in the world funds. that those resources can be used to for
a ten year wait any crisis that comes russian's way for them or there are more than five hundred billion dollars in tax reserves that russia has to try to deal with any volatility in the exchange rate front still however. it needs to be taken into account that these levels of reserves are lower than the ones that russia had before the first wave of the crisis in two thousand and eight in me two thousand and eleven he european players. will line this by the markets already pricing one in with a major impact on russia no piece of it through financial markets china's first child g.d.p. growth was two stronger than expected after repeated trade heights and it me through these measures to reduce inflation that split interferes hard landing into
months in commodity prices the u.s. debt ceiling impasse has the potential to bring the global economy to shoulder in full by the more likely commodity variable is the and. it has been. a key factor inflating commodity prices including russian exports it into gradual revenues and inflationary pressure still economists note this q. and outlays has increased significantly. one point. i was a crisis team russia was breaking federal budget breakeven level low prices was wrong six ago prepared with a crisis because russia continued social spending also because. of the client. slowdown it's now westerwelle the budget breaking in the under twenty dog which is much much higher and deeper delicately balanced global economy used to rushing in to see. it as low level. and large reserves would be restructured.
like the economic stimulus but the margin in the global economy worsens isn't less than it was an economic decision makers need to be killer that if you want to my heart's. ok gentlemen we've talked about russian policy in this in the in a volatile environment but let's talk about corporate russia chris how how much play learned through this crisis and get in let's say we have more volatile we have talked about a double dip the eurozone came corporate russia take that kind of blow well as a lot of people have said before the break russia is in a better debt situation right now than was the case certainly two thousand and eight so from a consumer because they learn lessons well it's hard to i suppose they learned lessons and also you know the country and the global economy generally has been you know other low or low growth or in crisis since since i period so there hasn't been
the opportunity perhaps to grow as fast as was the case before that but i think in general you can talking to executives in russia's big companies you know there. well aware of you know how vulnerable they were in two thousand and eight and they're all determined to avoid making those mistakes again so i think lessons have been learned but we find out when we get into the next room and when we think about that actually i would agree i would agree with that as you mentioned before the level of short term that has been decreased and i think it would be very helpful if we experience some other difficulties of course. some short time before a crisis helps any of this corporates to pay truck to ok i want to show you all of the government was very important to that point of time but i did a lot of short of that was repaid so obviously from that perspective it needs the confidence and we've got to give it a shake rattle and let's see if we get some major volatility and something of the magnitude of two thousand and eight two thousand and nine is the russian state in
a position to bail out corporates and their debt issues because that's what they did this last time are in a position to do it again if that's necessary. well. the question is only in the balance. of the. foreign exchange for a change in emanated loans versus denominated loans i think the corporate the corporate switched more to the rouble to the ruble borings and the moon rates are quite accommodated right now and they keep going down so now it is a major russian corporation can borrow you know for five years you know the rates of six point five percent or rubles which is which is perfect it's actually lower than inflation so i think that's that's a good economics and i'm not sure you know if they need to be bailed out. by the nikkei in the case of the external shock of course you know they're much better
prepared to go for the refinancing because the banks can take not only the but the corporate bonds to the central bank to refinance or the banks will also take the corporate debt loads of it into in the form they were under reagan so it's very very flexible now and lots of mechanisms you know you can still provide. lending see the corporates and the key question as we all know the no no business can be transferred by was financing there was a. normal rate of boring for any for any business if you're in business and expect to pay back all your loans at some point then they're not started so basically that russia was learned so that the state of the banking system the central bank has to be in a position to maintain its normal level of warnings which and i agree with all the previous speakers their level is you know normal on that what do you think about that is really is corporate russia i mean i'm a strong position now if there's an external shock and we have more of our own
dollar to woody. but yeah i would agree that there will be much less need a lot of corporates if something happens externally. and still going on for hundreds of succeeding people the amount of time of the little for russian federation about it the problem is that in case of major external shock we want and will have different problems that are problems with the budget. if it happens the government that needs to focus more on our fiscal side or perhaps not ok chris let's go back to an issue that you brought up earlier and it was all the cave thank god for libya but i'm quoting here world k. . but that's you know russia still has a commodity driven economy to a large extent they're trying to change it and trying to change it for a while but you know if we get some kind of external shock meanwhile prices go down
another commodity prices go down how is corporate russia and the russian state what's the strategy that is absolutely the key question in the whole you know it's an investment story for russia for the next few years as you say currently very commodity dependent means very vulnerable there for what happens in the rest of the world. the government has been talking at identifying you know whole series of reforms that need to be made across the whole is not enough is it enough come on you've been here a long time but what we actually want to see is progress on the reforms i mean you know it's unclear as providing lists of what needs to be done is fine we can all do that but what we're all waiting for and i think what investors are waiting for is some progress some action on those reforms to actually see that it's been implemented and i think that's you know on the one hand you could say if the price of oil were to go up to one fifty one sixty down you know we go back to the sort of complacency and slow progress we had before you know i think there is certainly an argument to be made that if the price of oil were to go down to something let's say
one hundred now you know not something dramatic would sit under one hundred. but that provides you know some financial stability but a lot more momentum and a lot more impetus to the reform program because you have to get on with the key issue for russia looking over the next few years is that even one twenty one twenty five dollar oil is not going to prevent a significant slowdown in russia's economic growth the only way that can be prevent this is with a substantial increase in investment in a lot of that would have to come from foreign investors if we have a double be applauded recession it will be much more difficult to track that it means the government will have to try harder to make russia even more attractive so i think it's substantially different game for the government after the next election and i really think about it i mean you know we when you look at. the price of oil and other commodities here. the government is going in the right making the right move moves in making the right sounds because i've been here a long time and we've heard about diversifying reciprocation away from petroleum
but you know it's a very slow process that is that is true but i think that is one fundamental difference from our economic perspective right now russia is already running a fiscal deficit i think in three four years of time russia will start running a current account deficit before in three or four years time russia will fail we will face a classic tween deficit problem this means that this twin deficit on external side on the fiscal side have to be financed somehow and the only way for us to be able to finance this easter attract foreign investment i think the government maybe for the first time in a very long period of time understands that so they understand that they have to make some improvements in the overall business environment in order to be able to finance this deficit and i think that again russia has never lifted such to deficit and it will be a totally different paradigm for them and this is the only way for them to finance the deficit we have to improve the overall business environment we have to. decrease corruption and all these reforms i think that they will be more serious about because of the prospect of facing tween deficits in the future i will tell
you what you think about. this is a very good point about brings up about double deficits or is the state prepared for this. well it's hard to get you know prepared for this on one side you need massive investments in infrastructure and you need basically to not only help in a economy as happened in two thousand eight thousand and nine when the state was helping out the corporate structure of the private sector to sustain the crisis but you really need to get the investment started you know if you turn invest and start . you know on a massive scale much on much bigger than we ever seen before. so that's that's a key thing and that's the micro konami. issues micro economics it's not a macro it's very hard for the you know you can try to govern can try but it just it takes time but what we see and what we just very glad to see that you know it's
. you know the economic activity speaking up you know you know we get to call it cascade gentlemen we've all run out of time here i hope they are not point here i want to thank all my guests here in the studio and up doing some thanks for viewers for watching us on the money see you next time the state of our team. for the full story we've got. the biggest issues get the cuban voice face to face with the newsmakers. from. the little beasts in which brighten. the sun from france to.